Towards a More Responsible Capitalism

French: Click here to download the full paper in French
English: Click here to download the full paper in English

We often talk about the shift from Shareholder to Stakeholder capitalism, so our team spent a few months studying what this implies in terms of corporate performance.

We interviewed about 20 CxO (mainly CFOs and CSOs) from best-in-class French corporations and financial players and came to understand that stakeholder capitalism implies:

• Moving from financial performance to “integrated performance” one that places ESG and financial performances at the same level
• Adapting corporate governance to drive such performance

The main question being “how”, the study includes many examples of tools and strong cases, as well as quotes from our best-in-class interviewees as a call to action for others.

The study also includes the results of the second edition of the Living Purpose Index. It ranks the listed Top 40 French companies based on their ESG actions and narrative towards all of their stakeholders, showing an improvement compared to last year. Our analysis also shows a positive correlation between LPI Scores and financial performance for the second year in a row; confirming that, today, serving all of its stakeholders does not come at the expense of financial performance for companies.

The study has just been released in the main French business daily Newspaper (Click here to read in French) and we’ve had one interview on French TV…so far!

SUMMARY

Today, the shift toward a more responsible capitalism is clearly underway. It has been accelerated by the climate emergency, the current pandemic, and the unprecedented agreement among stakeholders that companies must do more for society.

Behind this change, lies a transformation which remains largely quiet today; one that looks at how a company’s integrated performance is defined, measured, and driven, bridging the gap between financial and ESG value. An integrated performance model that is illustrated by bold commitments, at the core of the organization’s strategy and thus, at the core of their business, aligned with purpose.

This transformation comes with several challenges that all companies may not be mature enough to take on:

• Ensuring that ESG data is reliable and standardized
• Reconciling the short-term nature of financial data and the long-term nature of ESG data
• Establishing an integrated, consolidated vision of an organization’s financial and ESG performance

Nevertheless, as shown by BCG BrightHouse’s Living Purpose Index, as well as a number of other studies, financial and ESG performance go hand in hand: the best financially performing companies are also the most socially responsible.

Organizations must therefore progress on both levels in a coordinated way, to accelerate their transformation and anchor their performance long-term. Beyond redefining performance and creating tools, the shift toward a more integrated notion of performance should include changes in the governance and management models of organizations. As a whole, executive boards and shareholders still lack awareness on these matters; they must get on board with ESG for there to be constructive dialogue with executive management, for the company’s strategic decisions to be guided by a long-term vision, in coherence with the organization’s purpose.

This alignment is a prerequisite for integrated performance to reach the entire organization, with trained and committed employees, compensation practices linked to achieving ESG targets and more sustainable value chains that reduce negative externalities while multiplying positive impacts on the planet and society.

Here again, many initiatives are currently being implemented by the companies that make up the CAC 40, the main stock market index in France. However, efforts remain disparate and modest. As finance departments are taking up an issue that has been unfamiliar for a long time, one can only hope that ESG considerations will be at the top of executive’s agendas going forward. Indeed, European economic actors have a key role to play in leading this performance transformation, both to demonstrate the social European model’s ability to reinvent itself, but also to develop a true competitive advantage, driving a new growth model.

The clock is ticking for companies, the same way it is for the planet: only those who will be able to make this strategic shift quickly enough will manage to contend with tomorrow’s world.